What is Title Insurance anyway?

Anyone who has bought real estate, be it commercial or residential has worked with a title insurance company in some capacity. But do you know what title insurance is and what it protects?

What is title insurance?

Title insurance is a policy that compensates an insured party for certain unexpected losses and damages, up to a certain limit for defects that existed before transfer of ownership of the property.

“A title insurance policy is a contract by which the title insurer agrees to indemnify its insured for loss occasioned by a defect in title.” E.C.I. Fin. Corp. v. First Am. Tit. Ins. Co. of N.Y., 121 A.D.3d 833, 834 (2d Dept. 2014)

What does it protect?

Title insurance protects the title of your property, going backwards in time. Unlike health insurance or car insurance, both of which protect the insured from future events like an unforeseen medical condition or a car accident, title insurance protects the insured from title defects, adverse possession, unpaid taxes and other covered defects that existed before the transfer of title of your property.

Both lenders and buyers may have title insurance to protect their respective property from defects in title.

A title insurance policy will usually cover the following situations:

• parties in possession (ownership of the property by someone else)

• unrecorded easements (a restrictive covenant that may reduce the value or enjoyment of the property)

• encumbrances or judgments against the property like outstanding liens or taxes

• survey matters
  

The nitty gritty (the process of getting a title insurance policy)

Let's review the process of obtaining title through a residential purchase in Colorado using the Colorado approved buy/sell form:

In the Colorado approved form (form linked here) title is section 8. Usually, seller will pay for buyer's title policy and select the title company. Buyers also have the option of extended coverage which will extend coverage to insure over the standard exceptions. A title policy is then ordered.

Prior to the issuance of the policy, you will receive a title commitment. Think of this as the rough draft of your policy. The commitment contains a Schedule "A" which has buyer's information (buyers be sure to triple check this as no one knows your name and address of the property you are buying like you do!) and Schedule "B" which contains all of the exceptions to coverage. Exceptions are all recorded deeds, easements, liens, any gas, oil and mineral interests on your property, and other recorded documents the title company finds recorded against your property. Finally, there are conditions that need to be fulfilled for the title company to issue your title insurance policy.

For help with your title insurance policy, contact Kamenetsky Law.

Disclaimer — This content is for general information only. The information contained herein is not legal advice for any specific matter, nor does it create an attorney-client relationship. Laws vary from one state to another. For legal advice, consult an attorney.